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How to start investing in cryptocurrencies

Unless you have been living off the grid and have become completely disconnected from the internet over the last decade, chances are you have probably heard of the term cryptocurrencies. 

In today’s economic and financial climate, cryptocurrencies are all the rage and for a good reason – it is gradually changing the way that we view our relationship with money and value creation. The first known cryptocurrency, Bitcoin, was created by Satoshi Nakamoto and while many have speculated about the identity of Satoshi, the greater cryptocurrency community remains clueless as to who this individual is. It was quite evident that Satoshi wanted to remain completely anonymous throughout the development of what is now the world’s largest decentralised digital currency and since its global adoption, many other cryptocurrencies have joined the stage to share the limelight. Given the rapid growth of cryptocurrencies and with over 15 000 options to choose from, how does one start to invest in the space successfully?

Understand blockchain technologies

First things first, it is extremely important to understand how blockchain technology works. A true cryptocurrency investor understands that investing is not about hopping onto the gravy train because you expect to become extremely wealthy overnight or because you hope that whichever cryptocurrency you blindly invest in will give significant yields. In fact, investing in cryptocurrency often requires you to adopt the stance of first principles – where you seek to understand the technology from the ground up. Once you have grasped the fundamentals of what a blockchain is and how it is powered by cryptography you gradually start to understand what makes highly decentralised cryptocurrencies such as bitcoin so powerful. This is an important step because it will help to inform your cryptocurrency investment strategy when you start exploring the fundamentals of various cryptocurrency projects.

Acquire capital

After you have taken the time to solidify your foundational knowledge of blockchain technologies and how they are used to create cryptocurrencies, it is time to start building up disposal capital. While there are many ways to generate capital, if you are fortunate enough to be employed in a day to day job it may be worth considering setting aside some funds that you intend on using as investment capital – this is often referred to as having “dry powder” on hand. Alternatively, if your monthly salary covers all of your expenses leaving you with no investable capital, there is always the option of taking on a second job to generate a second stream of income. This has become more feasible over the last couple of years given the rise in the opportunity to work remotely. With the right set of employable skills companies may employ you on a part-time or contractual basis for your expertise. However, if you feel you have no employable skills there is always a wealth of online courses that you can enrol in to upskill yourself for today’s digital workforce.

Research cryptocurrency projects 

If you have managed to set aside some investable capital the next step is to perform a deep dive on exploring various cryptocurrencies. At this point it is worthwhile considering even just a small investment in the most dominant and ubiquitous cryptocurrency, Bitcoin. The rationale behind starting with Bitcoin as your initial investment serves as an introduction to the world of cryptocurrency by investing in the most secure and decentralised digital currency that has been around for more than a decade and still holds the largest market share of all cryptocurrencies. Once you have exposure in the market it becomes a lot easier to branch off into other cryptocurrencies, often referred to as “altcoins” – which includes all other cryptocurrencies excluding Bitcoin. It is worth mentioning that not all altcoins are guaranteed to deliver you a return on your investment, largely because not all of them have a valid use case nor do they provide any value. By performing your due diligence on cryptocurrency projects it becomes a lot easier to identify feasible projects worth investing in that are more likely to generate pretty decent returns. The key is to invest with confidence.

Find a reputable cryptocurrency exchange

The easiest way to acquire cryptocurrency is by purchasing them on an exchange. There are hundreds of exchanges that offer cryptocurrencies in exchange for fiat or other digital currencies, however this is another aspect that requires you to do research in order to identify those that are reputable. A few well known and trusted cryptocurrency exchanges include Binance, Coinbase, Crypto.com and Kraken – these exchanges have established a good reputation for reasons that include having a high level of security, a wide range of cryptocurrency offerings and they are quite easy to use. Serious investors sometimes go the extra mile and purchase their cryptocurrencies on exchanges after which they remove it from these exchanges and store them in a cold wallet as a means to ensure a higher level of security. There is a saying in the cryptocurrency world, “Not your keys, not your coins”.

Understand tokenomics

Tokenomics is a term which refers to a special type of economics reserved for cryptocurrencies. Often when doing research on the cryptocurrencies you are interested in, reviewing the tokenomics provides you with a holistic view of the cryptocurrency’s performance from a technical point of view. Tokenomics takes into account some key metrics that you should always consider as part of your investment strategy. This includes the supply of tokens, the market cap, trading volume, market cap dominance and all-time highs and lows. These metrics will only benefit you in that they will further inform your decision to invest in a cryptocurrency or not. One of the most popular platforms used by many cryptocurrency investors for tokenomics is CoinGecko. It is open source and offers a wide range of metrics and analytical data that you might find useful.

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